Consumer Behaviors of Drone Delivery by Anthony Mark Lawson Honors Thesis Appalachian ...

33 Pages·2017·0.34 MB·English

Consumer Behaviors of Drone Delivery

by

Anthony Mark Lawson

Honors Thesis

Appalachian State University

Submitted to the College of Business
in partial fulfillment of the requirements for the degree of

Bachelor of Science

May 2017

Approved by:

Charlie Chen, Ph.D., PMP

Dawn Medlin, Ph.D., College of Business Honors Director, Second Reader
TABLE OF CONTENTS
Abstract ........................................................................................................................................................ 1
Introduction ................................................................................................................................................. 2
Literature Review ......................................................................................................................................... 4
Risks .......................................................................................................................................................... 4
Insurance .................................................................................................................................................. 8
Diffusion of Innovation Theory .............................................................................................................. 11
Ø Innovation .................................................................................................................................. 12
Ø Communication Channels .......................................................................................................... 12
Ø Time ............................................................................................................................................ 13
Ø Social System .............................................................................................................................. 14
The Innovation Decision Process ............................................................................................................ 14
Ø The Knowledge Stage ................................................................................................................. 15
Ø The Persuasion Stage ................................................................................................................. 15
Ø The Decision Stage ..................................................................................................................... 16
Ø The Implementation Stage ......................................................................................................... 16
Ø The Confirmation Stage .............................................................................................................. 17
Attributes of Innovation and Rates of Adoption .................................................................................... 17
Ø Relative Advantage ..................................................................................................................... 18
Ø Compatibility .............................................................................................................................. 18
Ø Complexity .................................................................................................................................. 19
Ø Trialability ................................................................................................................................... 19
Ø Observability .............................................................................................................................. 19
Adopter Categories ................................................................................................................................ 20
Ø Innovators .................................................................................................................................. 21
Ø Early Adopters ............................................................................................................................ 21
Ø Early Majority ............................................................................................................................. 22
Ø Late Majority .............................................................................................................................. 22
Ø Laggards ..................................................................................................................................... 23
Research Methodology .............................................................................................................................. 24
Analysis of Results ...................................................................................................................................... 24
Ø Innovators (2.5%) Segment 4 (8.0%) .......................................................................................... 25
Ø Early Adopters (13.5%) Segment 3 (22.8%) ................................................................................ 25
Ø Late Majority (34%)/ Laggards (16%) Segment 1 (40.7%) .......................................................... 26
Limitations and Future Research ................................................................................................................ 27
Conclusion .................................................................................................................................................. 27
Works Cited ................................................................................................................................................ 29
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ABSTRACT
Drone delivery was first introduced to the world by Amazon’s CEO Jeff Bezos on a 60
minutes episode. With the evolution of e-commerce and B2C delivery, Bezos had thought of a
way to reduce the shipping time in an emerging market. He claimed that Amazon could deliver
the product to the consumer quicker and more efficiently. Major players would follow suit by
creating their own drone delivery service such as: DHL, Google, Dominos and UPS.
This paper will focus on consumers’ perspectives of the future of drone delivery and
analyze their willingness to adopt the service. An anonymous survey was conducted to see if
there were consistent groupings of people that had similar viewpoints about drone delivery. The
survey questions were based on a literature review regarding risks/insurance issues for
commercial flight of drones and the diffusion of innovation theory.
A cluster analysis, using SAS software, resulted in 4 groups of people that were
compared to the 5 groups from Roger’s Adopter Category theory. The results suggested that
almost 50% of the respondents would utilize a drone delivery service. That’s a significant
increase given the fact that most if not all of them have never utilized or even seen a drone
delivery service.
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INTRODUCTION
Drone delivery started to generate some excitement after a CBS television show aired in
2013. A 60 Minutes episode, featuring Amazon’s CEO Jeff Bezos, would change the drone
industry forever. Bezos unveiled a never seen before project Amazon had been working on for
several years. Amazon was creating an alternate way to deliver packages via drones. Bezos
called this new service Amazon Prime Air. In this episode, Bezos showed the world Amazon’s
new octocopters which will be the primary delivery vehicle behind this new service. Bezos
claimed that Amazon would be able to deliver packages in under 30 minutes from its fulfillment
center to the customer’s place of residence. Companies would later follow suit in creating a fleet
of drones for delivery such as: Google, DHL, UPS, Dominos and several others as well
(Bamburry, 2015).
Drone delivery service is generating a significant amount of media attention because e-
commerce is growing rapidly; so fast that a plethora of brick and mortar stores are paying the
ultimate price. According to E-Marketer (2016), overall retail sales worldwide will be around
$26.6 trillion with online retail sales to supersede $4 trillion by 2020. That means that
ecommerce will account for almost 15% of the total retail market. The upward ticking trend of e-
commerce entails more B2C transactions. Subsequently, people aren’t going into brick and
mortar stores as often but rather receiving packages in the mail adding to the attention of the
costly last mile. Figure 1 shows the significant increase in retail stores closing in 2017. To date,
about 3,000 have been closed so far, so the 9,000 listed in the chart is a projection for the year
(Rupp, Coleman-Lochner, & Turner, 2017).
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Figure 1
With the increasing trend of e-commerce, companies are looking to reduce the cost of
shipping. The most expensive part of shipping is the last mile; on average, it comprises 28% of
the cost of delivery (Pierce, 2013). Drones are thought to significantly reduce the cost of the last
mile because of reduced labor and fuel costs as well as the provisions for more efficient modes
of travel. The product that can be delivered to the customer faster will harm the environment less
and potentially be a safer mode of transit.
Almost all the testing and trial runs of drone delivery are being done in Europe and Asia
because of the strict regulations the Federal Aviation Administration (FAA) has imposed in the
United States (Bamburry, 2015). The FAA loosened restrictions for commercial drone use in
2015, but still left it virtually impossible for Amazon and other companies to utilize drones to
their full potential in delivery service.
One of the key takeaways from the new legislation is the visual line-of-sight (VLOS)
mandate. VLOS ensures the pilot will only operate the drone as far as he or she can see.
Everyone’s vision is different, but the drone wouldn’t legally be able to travel very far. It will
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take time for the FAA to further loosen restrictions. However, if companies continue to have
successful test runs overseas than the FAA will most likely continue reducing barriers to
commercial drone flight (Bamburry, 2015).
Having said all of that, this paper will focus on consumers’ perspectives of the future of
drone delivery and their willingness to adopt this new service. An anonymous survey was
conducted to see if there were consistent groupings of people that had similar viewpoints about
drone delivery. The survey questions were based on a literature review regarding risks/insurance
issues and the diffusion of innovation theory. My hypothesis was that the bulk of the responses
would be from undergraduate students. Assuming that most of the undergraduates were
millennials, and it was the researcher’s belief that most would be on board with drone delivery
because of the speed of delivery and the “coolness” factor.
The following describes the layout of the paper. The remainder of the paper will go as
follows. The next section will be an in-depth literature review of perceived consumer risks,
insurance plans to support drone manufactures and analyzing the diffusion of innovation theory
in relation to the study. The third section describes how the survey was conducted. The fourth
section is an analysis of survey results, grouping segments based on the cluster analysis. The
fifth section highlights the limitations of the study and proposes suggestions for future research.
The sixth section concludes the paper.
LITERATURE REVIEW
Risks
With the adoption of a new technology comes uncertainty and risks; drones (for delivery)
are no exception to this rule. Consumers have voiced their concerns about the possibility of
drone delivery: the landing spot of the package, privacy regarding drones flying over their
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houses or themselves, hijacking, crashes and cyber-attacks releasing personal information
(Draper, 2015).
The landing spot of the package is becoming more of a concern for consumers who live
in urban areas (Draper, 2015). In all of the videos Amazon released, the packages were delivered
to someone’s home in either a suburban or rural area. Draper (2015) is concerned about those
living in densely populated urban apartment complexes. Where does that pad go if you live in an
apartment complex or something of that nature? David Pogue (2016) asked this very question in
an interview with Amazon’s vice president for global public policy Paul Misener. The dialogue
is listed below:

Pogue: How do you solve the apartment-building problem?
Misener: We’re working on it. And again, it might be changing the design of the drones, so that
they better serve that kind of an urban environment.
Pogue: Or maybe the apartment-building owners could designate, you know, a spot on the
roof, or in the courtyard?
Misener: That’s entirely possible. We’re thinking through those.

Essentially, Misener said that Amazon is still working on landing the drone at locations
such as apartment complexes. It appears Pogue (2016) made a good suggestion though. Amazon
will have to work with apartment complexes to designate a spot to land the delivery such as the
roof. This is an ongoing issue that Amazon has yet to resolve.
Privacy concerns about drones flying over people and their houses have not dissipated
but rather grown stronger (Draper, 2015). People are not comfortable with this technology flying
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over their heads. One of the largest concerns is spying because most of the drones that will be
used for commercial purposes have cameras attached to them. Pogue (2016) asked Misener about
the possibility of civilians shooting down an Amazon drone for privacy concerns. Here is the
dialogue:

Pogue: What if there’s some guy with a shotgun who sees that I’m getting a TV and wants to
shoot it down?
Misener: I suppose they could shoot at trucks, too. We want to make the deliveries. And we
believe that these Prime Air drones will be as normal as seeing a delivery truck driving down the
street someday. So, the novelty will wear off.

Draper (2015) stated that drone crashes are inevitable because of the wide range of
possibilities. Amazon as well as others are using sense and avoid technology so that their
octocopters don’t run into anything, but there’s risk associated with the technology
malfunctioning. Drones can crash into other aerial vehicles (not only other drones but
commercial airplanes), buildings and birds (Draper, 2015). Additionally, there can be hazards
after the crash. For example, the debri from the crash landing in someone’s yard that small
children run around in. Pogue (2016) asked Misener about drones disrupting commercial airlines.
Here’s what Misener had to say:

Pogue: And how will you keep these drones from interfering with air travel?
Misener: Well, we’ve proposed to regulators around the world, including the FAA, a certain
kind of an airspace design that would keep the drones separated from the aircraft.
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We were thinking: Manned aircraft above 500 feet. Between 400 and 500 feet there’d be a no-fly
zone — a safety buffer. Between 200 and 400 feet would be a transit zone, where drones could
fly fairly quickly, horizontally. And then below 200 feet, that would be limited to certain
operations. For us, it would be takeoff and landing. For others, it might be aerial photography.
The realtors, for example, wouldn’t need to fly above 200 feet to get a great shot of a house.
Cyber-attacks are another significant concern of both the public and the companies
deploying delivery services (Draper, 2015). With the increasingly popularity of drones,
government officials are considering the possibilities of cyber-attacks (McNeal, 2016). In fact,
the Federal Trade Commission (FTC) summoned their Fall Technology Series on drones in
October 2016. The FTC ran a demonstration to see if they could access the video feed, hijack or
disable the drone’s navigation, collect information about nearby connected devices or change the
GPS signal (McNeal, 2016). To help illustrate the potential hazards from cyber-attacks, here is
an interview Gregory McNeal (2016) had with the Chief Information Security officer at AirMap:

Greg: The drones in the FTC’s demonstration were all under $200, and in the case of the
Parrot AR, technology that is six years old. Are all drones vulnerable to these kind of attacks?
Jared: Any device is a potential target for an attack, especially devices that send and receive
data remotely. This is true for the smartphone in your pocket, the garage door opener in your car,
and the laptop in your office. Drones are no different.
Like these other devices, drones can be targeted for software and system attacks. And
because they fly, navigate, capture video, and are controlled remotely, drones are also potential
targets for other kinds of attacks: command and control (C2) data link jamming and spoofing, in
which a hacker blocks or falsifies the data link to disrupt or take control of the drone;